New Wave Markets Blog

International Trade: Open up!

Economist Intelligence Unit in cooperation with UK Trade & Investment — Fri, 05 Feb 2010 16:57:57 +0000

This week, I have attended several meetings in listening mode: hearing from those wiser and longer seeped in China; gleaning some insights; and wondering what it means for me and the task at hand.

My task: I’ve come out to China to work on market access issues – how China opens its market to foreign enterprises and continues to reform its business environment, so that businesses from the UK (and further afield) can operate and trade.

China’s current “five-year” plan describes its commitment to “opening-up,” seeing it as “win-win.” I’m not an economist, but the principle of open markets seems on paper to be exactly that – win-win. For a business, it creates new markets and new potential to boost the bottom-line.

It increases competition and therefore innovation. It expands its customer base, and gives consumers greater choice. It raises the bar for companies going to a market and for indigenous companies challenged by new companies coming in.

A key question for my task is what this all means in China in 2010? This week the commentariat seems concerned, amongst other things, about a rise in trade protectionism. Some of the language is pretty accusatory and heated. The challenge, for policy makers and leaders alike, is not to allow the rhetoric to snowball into real-world impact.

Part of the problem comes when the “creative destruction” of market liberalisation meets economic nationalism. Most economies around the world have taken a beating on the employment-front. In China, leaders and policy makers are trying to keep what I saw described as a “half-developed” economy of 1.3 billion people on the road of growth. It must seem pretty tempting to look for the route that gets you the jobs you need now, and to fight for comparative advantage for the future.

There are real gains for all countries to be made from openness, not just in terms of trade, but also development, if done sensitively, and done right. And, hopefully, for UK companies, continued openness will be new business, and new growth. We need to press the case.

Duncan Buchanan is commercial attaché at UKTI Beijing

Growing opportunities in the Gulf

Economist Intelligence Unit in cooperation with UK Trade & Investment — Mon, 18 Jan 2010 17:07:43 +0000

The Gulf Cooperation Council (GCC) was formed in 1981 by Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates.

Primarily hydrocarbon driven economies all (possibly except Bahrain) are clearly cash rich and have benefited from the high oil prices in recent years. It is interesting to note that the current price of oil was declared as ‘fair’ by the King of Saudi Arabia, and exceeds the national budget expectations of all GCC states.

The GCC region’s economy tripled in size between 2002 and 2008. The combined nominal GDP of the region grew at the highest ever rate of 33.9% in 2008 to US$1075.98 billion.

The infrastructure spend of member countries of the GCC is expected to grow again in 2010 to around $500bn by 2013, $55 billion of which will be funnelled into road and airport projects within the next 10 years to expand capacity and meet a surge in demand. And this does not include the planned $25bn train that will link the six GCC countries in the region’s first cross-border rail network, the bids for which could be issued in the first quarter of 2010.

So what is driving this need for growth? It is primarily a growing and youthful population with the vast majority being under 25 years of age. Recent surveys suggest that population of GCC will rise from an estimated 39.6 million in 2008 to 53.4 million in 2020 – a 33 per cent increase over 12 years.

With this comes the need for more schools, universities, hospitals, roads and airports. Power and water projects in GCC nations are largely carried out by quasi-government entities, and these projects are seen as a high priority, as the additional capacity is urgently required to address demands of the region’s growing population. Annual GCC electricity demand is expected to grow annually by 10 percent, and desalination demand 8% annually, until 2015.

UK firms will be well advised not to focus on the bright headlight, the glittering prize, in the first instance but should start at a manageable pace, feeding into the supply chains of ‘local’ prime contractors and become known as a ‘local’ supplier.

Just one word of caution – the cost and time implications in developing a profitable business in GCC will almost certainly be way higher than you expect. Predict double your calculations to be safe!

Phil Dowrick is a specialist in the Middle East at UKTI

Making sense in Mandarin

Economist Intelligence Unit in cooperation with UK Trade & Investment — Mon, 07 Dec 2009 16:49:20 +0000

I can relax for a bit. I’ve just given my fourth speech in Mandarin in as many days. I now have 20 minutes downtime before I attend a press conference. Time for a blog.

On Tuesday, I opened an advanced engineering and financial services seminar in the provincial capital of Shandong Province, Jinan. On Wednesday, I spoke before assembled shoppers at the opening of a new Byford outlet in Beijing’s premier shopping district, Wangfujing. On Thursday, I was back in Wangfujing to celebrate Wedgwood’s 250th Anniversary.

It takes me several hours to practice a long speech in Mandarin. Practice is most effective if I spread it over several days. At present, I am spending an hour from 7:15 to 8:15 each morning with my teacher, Ms Zhang, trying to perfect delivery of the next speech. We got it right with Wedgwood. I was more relaxed than usual and the speech sounded smooth and natural. At the Byford event I was somewhat tongue-tied. My text was too long, and I tried to shorten it as I was speaking. Another speech was not too bad, but I slipped up several times: once, when I was distracted by a photographer, a second time when I used Japanese pronunciation for a word.

I started to learn Mandarin when I arrived in China three years ago, aged 48. I learned Chinese through Japanese, in which I am relatively fluent. Knowing Japanese helped enormously with the characters and vocabulary, but not much with pronunciation and not at all with Mandarin’s four tones. I will never speak Chinese like a native speaker, though I continue to improve. The key thing is that I make sense. This is worth all the time and money I devote to learning and practice. It will, though, take more time before I trust myself to give a press conference without interpretation.

Alastair Morgan is director of Trade & Investment for China

UKTI: Visit to China

Economist Intelligence Unit in cooperation with UK Trade & Investment — Thu, 19 Nov 2009 22:45:37 +0000

Chinese infrastructure efficiency hits me as I arrived at Shanghai’s Pudong airport. The BA flight was over an hour late, so I had 20 minutes to get through quarantine and immigration, to change terminal, check in, go through security and find the right gate. At Heathrow this would have taken two hours minimum. The officials were helpful, the system worked, the new China.

It took me back to my first visit to China in 1979. Just three years after the end of the Cultural Revolution, I found myself the secretary of an agricultural trade delegation. To get to China we went via Anchorage and Tokyo in a journey taking over 36 hours. The chaos remained; it was a society and an economy reeling from a collective loss of reality. Officialdom was everywhere and paramount. I did the classic thing of leaving my wash-bag in Beijing and being given it back by the police in Nanjing. I had one heart-breaking talk with the director of a scientific institute, a learned but broken man, recently released from hard labour in the north. In Shanghai, I broke away from my minders, wandered the city and ended up on the Bund, mobbed by a crowd, not selling fake Montblanc pens as now, but desperate to talk to a foreigner.

This time, I am doing a tour of five cities. Three of them are twinned with a UK city (including Leicester, Liverpool and Coventry) The municipality of Chongqing, my first post of call, claims a population of 32 million, half of the whole of the UK! The statistics in China boggle the imagination.

The Chinese now have the energy and self-belief that the British had in the mid-nineteenth century and the Americans had in the mid-twentieth. Great nations used to express their superiority by conquest, exploration, trade and art. Now trade, with international politics is pre-eminent. We all know China’s potential. But how will it respond to global responsibility, global competition and the perils of instability? Back in 1979, it looked inward and backward, guided by a shifting dogma, now it is global and reaching out. I vote for its airport infrastructure anyway.

Andrew Cahn is chief executive, UKTI

UKTI: The lure of Nigeria

Economist Intelligence Unit in cooperation with UK Trade & Investment — Thu, 12 Nov 2009 16:26:31 +0000

When I mention I’m based in Nigeria, I often get a knowing incline of the head and something resembling a sympathetic frown – occasionally both at the same time, accompanied by a sucking-in of air. It feels like I’m the bereaved. I say I’m here by choice. I don’t think they believe me.

It all boils down to perception versus reality. When many business people think of Nigeria, they immediately think poor infrastructure, limited power, security and crime issues. However, the reality is very different. British companies with a pioneering spirit are doing well. For them, Nigeria is one of Africa’s best-kept secrets and they want to keep it that way.

The most populous country in Africa, with a population of 149m, Nigeria is tipped to become the world’s sixth largest country by 2050, with 289m people. Lagos alone has a population of 15m and is growing 10 times faster than New York and Los Angeles. And Lagos currently contributes 32pc of Nigeria’s GDP. It will be hard to ignore.

The opportunities for British business extend well beyond oil and gas to infrastructure, ICT, healthcare, agriculture and financial services. This week I met a guy from a British company that has decided to set up in Nigeria. It is small and provides niche training, but is already working with one of the oil majors. He was amazed to hear of the opportunities on offer and we are now working together to try to open a few more doors.

Having been here for a few months, I can say there is nothing more rewarding than exploring new opportunities for UK companies and then helping make them happen.

Andy Davison is deputy director of trade in Nigeria for UKTI

UKTI: November snow day in China

Economist Intelligence Unit in cooperation with UK Trade & Investment — Wed, 11 Nov 2009 23:44:23 +0000

A recent article highlighted how the Chinese government covered Beijing in snow at the beginning of this month to bring winter weather, in an effort to combat a lingering drought.

There is no question of the seriousness of the pervading drought and worsening shortage of water in China. Here in Beijing, the water table has been dropping year on year and the main reservoir has reported low levels for the last two summers. This is primarily an issue for Northern China and one that the government plans to solve with a huge engineering project directing water from the south.

Last week, though, I met a UK-invested water company involved in supplying water, who told me that their operation in the southern province of Fujian sells excess clean water because a neighbouring water plant is short. Despite the downturn this past year, the demand for water (for industry, agriculture or domestic consumption) continues unabated and I am surprised we don’t see more efforts to raise the awareness of a need to reduce water consumption.

The rampant economic development over the last 30 years has also taken its toll on quality of water, which is becoming a growing concern. Polluted rivers and lakes are receiving more attention in the local media. People are gaining an increasing awareness of the long-term damage to their health from unbridled pollution, and are voicing their concerns loudly.

Although efforts made by domestic companies and organisations are admirable, given the scale of the problem we know that China is welcome to solutions to environmental problems from outside its borders. One most welcome sign of a more open and fair market was the news at the end of October that China was lifting the 70% rule on local procurement for wind farms (that until now had limited the ability of overseas firms to sell components to developers).

Returning full circle to the subject that brought me onto this train of thought, the report of the “‘enhanced’ natural snowfall” provokes more deliberation. As one environmental problem is tackled, another comes to the fore. Switching on Beijing’s heating two weeks ahead of schedule increases the amount of coal burned this winter, thus making an unanticipated additional contribution to GHG emissions.

Tina Redshaw is first secretary, head of energy, environment and infrastructure, UKTI Beijing

BRICs on a seesaw

Economist Intelligence Unit in cooperation with UK Trade & Investment — Tue, 18 Aug 2009 12:59:09 +0000

Stock markets across the BRIC countries seemed to be faltering in the past week or two on the back of a range of poor news. Chinese bank lending data was particularly worrying as Michael Wang, an emerging equities strategist at Morgan Stanley in London pointed out in this report, with new Chinese loans falling from 1.5 trillion in June to 355.9bn yuan in July. Then there was below-forecast industrial growth in July, showing that China may be stumbling a little more than investors had hoped. Emerging equities were hit too. On Wednesday last week Great Wall Motor, China’s biggest maker of pick-up trucks, saw its stock sink by 10%. It was, according to this Bloomberg report, the “steepest slide in eight months”.

Meanwhile, forecasts for the Monsoon season are dampening forecasts for the economy in India. Fears that a decline in agricultural output will reduce consumer spending may be one explanation for the weaker performance of the Bombay Stock Exchange this month.

Russia too was looking blue as domestic data pointed to a deep recession, with the economy shrinking nearly 11% in the second quarter. But after the midweek Federal Open Market Committee (FOMC) meeting, things started to look up a bit – for the time being at least. In this report, Timothy Ash, head of emerging-markets economies at Royal Bank of Scotland reckons: “The wobble in the risk rally from [the past week] appears to have dissipated for the time being on the back of the generally market-friendly Fed statement.” As a consequence equities rebounded, even in Russia, which saw its Micex Index jump 1.3%. For the moment the talk in town is that the global economy may be rebounding. Brazil’s expanding trade surplus and the enduring success of its currency may help to direct some of this optimism towards BRIC countries.

Calling for New Strategies

Economist Intelligence Unit in cooperation with UK Trade & Investment — Fri, 31 Jul 2009 07:41:37 +0000

Mobile phones have long been a hot topic in emerging markets. And this focus has only intensified as business in developed markets has cooled. Japanese manufacturers, in particular have felt this downturn according to the New York Times, partly due to their focus on high-end phones—a niche that hasn’t fared as well in the downturn (Apple’s iPhone aside).

Instead, mobile phone manufacturers are using a range of strategies to capitalise on the opportunities available in emerging markets. Vodafone has competed on the stock market with Qatar Telecom QSC, the state telephone company, in an effort to appeal to foreign investors and break apart the monopoly in Qatar, a fast-growing Gulf state. This would add to a string of successes for Vodafone in emerging markets after its acquisitions in India, Ghana and Turkey over the past two years. Meanwhile, Nokia has focused on diversification as a market-entry strategy. By creating phones with longer standby times and internet connectivity, Nokia hopes its various new models will better match emerging market requirements. Other manufacturers are simply competing on price in markets with low disposable incomes. Low-cost and ultra-low-cost handsets costing as little as US$15 are “feasible” according to industry analyst Michael Morgan.

Companies from emerging markets are themselves grabbing market share. India’s Spice, a telecoms group, last year unveiled a £10 “people’s phone”, which does away with all unnecessary extras, such as a screen. In Vietnam, local telecom operators have boosted business by selling in rural areas and allowing multiple numbers per phone. Elsewhere, Chinese company Zhao Zhixin is using franchise models to tap into demand in the Middle East and India. South Africa’s two mobile giants, MTN and Vodacom, have worked hard to establish presences in other African markets ahead of global rivals, using their know-how of local business as an edge.

The rationale for these players is clear: according to the UN, even in the economic downturn, demand in Nigeria, India and the Middle East remains strong. But it’s not yet clear which firms will emerge as the new emerging market giants.

The power of spin

Economist Intelligence Unit in cooperation with UK Trade & Investment — Mon, 27 Jul 2009 09:46:11 +0000

The spin doctors of South Africa’s new president, Jacob Zuma, seem to be doing a fine job. In just a few months the man who was vilified by the country’s media in the run up to the election in April is now widely praised for his pragmatism. The recent appointment of Gill Marcus, chairwoman of the Absa group, one of the country’s biggest banks, as new governor of South Africa’s central bank is seen as a “market-friendly" move, according to this MarketWatch report.

Lars Christensen chief analyst at Denmark’s Danske Bank reckons that if Mr Zuma stays on this track “he might be able to pull off a ‘Lula’” a reference to Brazil’s President Luiz Inácio Lula da Silva whose pre-election image as a leftist populist soon changed to a mainstream pro-market supporter on assuming office. The next appointment to watch will be that of the new chief justice; the selection of a sidekick of the ruling party could undermine judicial independence. John Hlophe, the judge president of the Western Cape has been mentioned, though he is regarded as being far too close to Mr Zuma. There had been fears, of course, that Mr Zuma would put one of his cronies into the job, and these concerns persist. If Mr Hlophe is appointed, many will once again question the direction that the new president is taking his country in.

The Turkish Surprise

Economist Intelligence Unit in cooperation with UK Trade & Investment — Fri, 10 Jul 2009 14:23:35 +0000

Apparently Turkey is holding up pretty well despite the financial turbulence that has unsettled many emerging markets over the past few months. One cause for optimism is that the country appears to be close to agreeing the terms of a loan from the IMF, according to this recent Forbes report, and further interest rate cuts are on the cards too. In addition, Turkish stocks have outperformed the MSCI index of emerging markets this week.

There is more good news in Templeton Asset Management’s decision to invest $1bn in Turkey over the next two to three years. Although this may be down from the $2bn invested prior to the crisis, veteran fund manager Mark Mobius is quoted here saying: ‘As money comes in and investors are more interested in higher revenue-generating investments, this could go back up $1 billion in two to three years’ time’. In fact Mr Mobius is not convinced that Turkey needs the IMF loan at all as it is a “country that has the ability to discipline itself to cut down government spending”.

However, it’s worth keeping Turkey’s recent economic performance in perspective: industrial production fell 17.4% in May and the economy has shrunk 13.8% in the first quarter. So the central bank, whose monetary policy committee meets on July 16, should continue with its rate cutting cycle to maintain economic growth.

Not all the figures are so poor. Banking sector profits have risen by nearly 30% in the first five months of the year – no doubt one reason why half of Mr Mobius’ company’s portfolio in Turkey is in banking shares.

Does decoupling still have legs?

Economist Intelligence Unit in cooperation with UK Trade & Investment — Wed, 24 Jun 2009 11:12:10 +0000

Not so long ago few would have believed that that four emerging market countries would be convening to challenge the role of the IMF, Washington’s financial stewardship and world dependence on the dollar. But this month they did just that. Leaders from Brazil, Russia, India and China – the so-called Bric countries – met at a summit in Yekaterinberg in Russia to focus predominantly on economic issues (politically, the four have rather less in common).

The Economist called this first Bric summit more rhetoric than substance. But while this may be true, it is also true that the world’s biggest emerging markets are recovering—and faster than everybody expected.

This has led to the emergence of fresh decoupling theories. Back in 2007 when the western economies started to falter, a theory surfaced that emerging markets could in fact be fired by their own domestic growth thereby reducing dependence on exports of goods or services to developed markets. This was soon dismissed, but now some are saying the theory still has legs. It may not be true for all emerging markets but it could be true for China, says Zsolt Papp, chief economist of emerging equities at Belgium-based KBC. China, he says, “is in a different part of the cycle, it’s ahead of the world”.

More evidence to back confidence in emerging markets comes from the fund tracking consultancy, EPFR, which says over a third of the nearly US$30bn of global emerging equity inflows in the year to June 10 went into Bric countries. However, of the four Bric countries, Russia remains the weak leak, due to its sharp economic decline, overextended borrowing and high default rates.

Still, Bric is where it is at, although the group might need to be rebranded ‘Bric-sim’ or ‘Bric-ism’, if this commentator is to be believed. Ivan Safranchuk, a political analyst at Moscow State University of International Relations, argues that a number of other emerging markets are hoping to be admitted to the original group, such as South Africa, Mexico and Indonesia. He reckons only South Africa could add value, although others say Indonesia has more chance after its July presidential elections.

A Slippery Slope for Venezuela?

Economist Intelligence Unit in cooperation with UK Trade & Investment — Wed, 03 Jun 2009 15:45:46 +0000

These are interesting, if somewhat dangerous, times to be in the South American oil business. The flamboyant Venezuelan president, Hugo Chavez, is still playing Robin Hood by nationalising oil service companies and confiscating private stakes in oil production, while at the same time buying majority stakes in projects run by foreign oil companies. This is all to fund his country’s social projects. Now, as Reuters reports, it appears that major oil-drilling firms like Halliburton and Schlumberger are in the sights of the presidential bow and arrow. When a government’s troops seize control of your company’s assets it may be time to reconsider your options.

Compare this approach to Brazil where it is unlikely that the energy minister, Edison Lobao, will be donning his green tights any time soon. Instead, Mr Lobao has raised expectations of Brazil becoming a major energy producer and exporter by announcing that his government supports a ‘production-sharing model’. This is to develop the country’s recently discovered offshore reserves deep under the ocean floor which are believed to be in excess of 14 billion barrels of oil. ‘Production-sharing’, as this story points out, is government-speak for maintaining ownership of oil but paying oil companies with part of the proceeds.

This marks a change from the current system where oil companies own the right to the oil they produce. However because Brazil is still inviting companies to bid for concessions—unlike Venezuela—the Financial Times and some industry analysts are backing the Brazilian approach. The argument goes that the country is following in the footsteps of other successful state oil companies, like those in Saudi Arabia and Norway, which are open private sector involvement.

All Eyes on India

Economist Intelligence Unit in cooperation with UK Trade & Investment — Thu, 21 May 2009 10:50:52 +0000

The election in India is over and news that the Congress-led United Progressive Alliance had won gave the Bombay bourse a good bounce. Promises by the party to modernise India’s economy saw the Sensex Index leap 17% on its first day of trading after the election. But frankly, to retain this level of investor confidence the new Indian government will have to begin delivering on their election pledges smartly. These include more planned privatisation, education reforms and increased private participation in infrastructure development.

In this Financial Times report Subir Gokarn, chief economist for the Asia Pacific region at Standard & Poor’s reckons the new government will have to strike a balance between tentative reform and its inclusive growth strategy. A good, if slightly obvious, point.

However, luckily for India, the Congress-led alliance may have got its timing right. Recent figures suggest that India, along with other emerging markets, is already benefiting from the recent inflow of US$6.2bn into emerging market equity funds between January and mid-April this year.

Investors and politicians will be waiting to see if these investments are indicative of growing investor confidence and a sustained upturn, or nothing more than a bear market bounce.

Certainly, it would appear that financial analysts are grappling with deciding whether the emerging markets’ relatively low exposure to credit derivatives and sub-prime mortgages is enough result to translate into a recovery. Or if, on the other hand, they are inextricably linked to western economies, and unable to ‘go it alone.’ Over the coming months India’s population, along with institutional and retail investors, will be watching to see if things really do get better.

Not broad enough

Economist Intelligence Unit in cooperation with UK Trade & Investment — Wed, 06 May 2009 14:52:54 +0000

There has been a lot resting on Chinese shoulders in the past year. As the economic crisis in the West began to spin out control, some commentators proclaimed that continued growth in China would keep the rest of the world afloat. Decoupling theories – that China was no longer dependent on the US for growth – emerged. But these were soon dismissed as wishful thinking. China, which is now referred to as one of the Asian driver economies started to show signs of slowing, and faster than many initially expected.

But according to this Bloomberg report the tide could be turning. Yes for the first time in nine months the Chinese manufacturing sector has expanded, admittedly helped along by the government’s $600bn monetary and fiscal stimulus package. The news saw emerging markets stocks, bonds and some currencies including South Africa, Mexico, Chile and Peru, rally this week.

Rabih Sultani, a hedge fund manager at Duet Mena Ltd, part of a group managing $2bn globally is hopeful: “The worst-case scenario is now on the backburner, and the future doesn’t seem as gloomy anymore.” He reckons that liquidity is slowly returning to the market as “China proved more resilient”. Certainly China’s state-owned companies have been able to keep spending at rather remarkable rates. Still it is worth remembering that late last year tens of thousands of factories shut up shop and 20 million migrant workers were laid off.

And as this business story from the Times points out, China’s aggressive stimulus package may have serious consequences for the rest of the region. Eric Fishwick, chief economist at CLSA, a brokerage and investment group says the scale of Chinese state investment could see capacity increase “where market forces would normally force it to contract”.

He goes on to say that “building additional industrial capacity in the face of falling prices is value-destructive — and not just for Chinese businesses.” So China may have broad enough shoulders to carry its own companies but it actions could put heavy industry in the rest of Asia “acutely at risk.”

Not dead yet

Economist Intelligence Unit in cooperation with UK Trade & Investment — Tue, 21 Apr 2009 14:29:59 +0000

“The Race is Run; the Runner Spent” is a pretty apt title for a somewhat negative report by risk ratings agency Standard & Poors (S&P). This FT Alphaville blog post outlines the key findings which are that “credit fundamentals in emerging market sovereigns have deteriorated markedly over the past seven months”.

The agency has downgraded 10 of its 43 emerging market sovereigns in the past six months, including one default. A further ten had their outlooks worsened although escaped a downgrade. However, now nearly half the group has a negative outlook versus just a fifth back in September 2008. The countries that have had their ratings lowered since September are Argentina, Bulgaria, Dominican Republic, Ecuador, Hungary, Jamaica, Pakistan, Russia, Sri Lanka and Ukraine.

The common thread running through all was investor risk aversion which depressed emerging market exports and raised external funding costs. For some a deteriorating political environment played a role. Argentina for example took control of its private-sector pension scheme. But one bright spark was the Slovak Republic, which S&P upgraded during the period – a welcome exception.

In spite of the negative ratings, S&P says the runner isn’t dead. After all “despite the downgrades and outlook adjustments, the distribution of S&P’s emerging market sovereign ratings has remained relatively stable”. Most of the downgrades of a single notch in the past six months and some – like Ecuador, Pakistan and Ukraine – remained within their rating categories.

The outlook for the coming quarters may be “less than rosy” with little scope for rating upside.” But any downgrades will probably be modest.

Mum is the word

Economist Intelligence Unit in cooperation with UK Trade & Investment — Tue, 07 Apr 2009 11:36:38 +0000

Russia needs to take its mothers more seriously if it wants to fulfil the ambition of become an economic powerhouse. According to this BBC report Russia’s population is shrinking at “frightening” rates. Today the country’s population stands at 142m but by 2050 that could shrink to as little as 100m. This is not good news for investors as a decline in population can have serious consequences for economic growth.
Birth rates were badly affected in the 1990s when Russia made the transition from communism to capitalism. But things do not seem to be improving now. If anything new mothers are increasingly disillusioned. The perception, says this report, is that working mothers are a burden to employees. Meanwhile alcohol abuse of low-grade drink leads to one in three deaths of men of reproductive age. Official data from 2006, says Russian men live on average 60 years, 15 years younger than the European average. Life expectancy for Russian women is 72 years.
The Russian government has tried to halt the crisis by offering financial incentives to have children. But of all the BRIC countries Russia remains in the worst state demographically, says Deutsche Bank economist Markus Jaeger.
He explains that India’s population has been growing fast. In China the workforce will continue to expand until 2015, when the population will start to age, but it should not decline.
Brazil says Jaeger will benefit from a 20% increase in workforce by 2025. Russia on other hand “could face a population collapse”. Perhaps not the BRIC to be building on?

The Soros solution

Economist Intelligence Unit in cooperation with UK Trade & Investment — Thu, 02 Apr 2009 10:48:17 +0000

Mention the name George Soros and most investors will sit up and pay attention. According this report the billionaire investor said this week that the G20 summit is “hovering on a knife edge between success and failure”. Soros was giving a speech at the London School of Economics.

Not exactly what we need to hear when the OECD is calling this “deepest and most synchronised recession in our lifetimes”. But Soros has something of a solution. He expects around $250bn of new funds to be available this year under the International Monetary Fund’s Special Drawing Rights (SDR) scheme. SDRs are international reserve assets which can be exchanged for major currencies like the pound, euro, yen and dollar.

Extending SDR allocations is already under discussion but Soros goes a step further. He wants the bulk of the new funds made available this year to be transferred from richer countries to more vulnerable emerging markets. For Soros this “would be a tremendous accomplishment for the G20, a practical achievement to move the world forward. The principle of doing it and endorsement from the G20 leaders would be the most one could expect [from the summit meeting]."

Worth watching.

Goodbye greenback?

Economist Intelligence Unit in cooperation with UK Trade & Investment — Tue, 24 Mar 2009 14:47:54 +0000

Emerging markets are getting a bit fed up with their dependency on the US dollar, according to this Reuters report. Many emerging economies including China and Russia, but also India, Brazil, South Korea and South Africa, have joined an international chorus calling for the world’s main reserve currency to be replaced by a super-sovereign reserve currency.

One possibility is for an overhaul of the global monetary system to allow for wider use of the so-called Special Drawing Rights (SDR) allocated by the International Monetary Fund (IMF). These were created in 1965 originally to replace gold and silver in large international transactions. Essentially they are an artificial ‘basket’ currency, currently based on the euro, pound, yen and US dollar. It is used by the IMF for international accounting purposes and by some countries as a peg for their own currency.

The reason for all the noise is that leaders of emerging economies are increasingly concerned about “the long-term value of the dollar” which this week saw its biggest weekly slide since 1985. Export-oriented emerging economies are particularly worried. China, for example, which has the world’s largest foreign-currency reserves of $2 trillion, would be adversely hit by a widespread dollar sell-off. So no surprise that it wants to reduce exposure to the greenback.

However, while adopting a super-sovereign reserve currency like SDRs could help solve the global imbalances of recent years it seems unlikely that this is going to happen any time soon. Global acceptance of a new reserve currency would take a long time, and would be “a bold initiative that requires extraordinary political vision and courage,” says Chinese central bank chief Zhou Xiaochuan. But if it did Jon Harrison, emerging foreign exchange strategist at Dresdner Kleinwort says “you’d want to sell the dollar and buy other currencies that would be part of the SDR basket.”

In any event, this week a United Nations panel of experts is expected to recommend “the world ditch the dollar as its reserve currency in favour of a shared basket” similar to the old Ecu, or European currency unit. Euro, anyone?

Gravity shifts east

Economist Intelligence Unit in cooperation with UK Trade & Investment — Fri, 20 Mar 2009 17:24:25 +0000

The global slump is hitting everybody but China is the best placed among emerging markets to rebound from the crisis. According to this news report the World Bank admits that China’s real economy has been hit hard by the crisis but it is still holding up.

In the World Bank China quarterly update, released this week, forecasts have been cut to 6.5% from 7.5% earlier this year. That is the second time in the last few months. Last November the Bank predicted that China would grow by 9% in 2009.

Still 6.5% is fairly healthy given the current state of the world. The main reason for the slow-down in China is that its exports have been badly hit. China’s exports plummeted 25.7% year-on-year in February after falling 17.5% in January in what was described as the “worst performance in a decade”.

But China’s banks have remained relatively unscathed and this coupled with aggressive government stimulus measures should help the country ride out the storm.
The World Bank reckons that the country’s economic fundamentals are strong enough to look beyond 2009, and the country should give less emphasis to short-term growth and more on longer term issues.

Other commentators are cautious too but the general consensus is that China, and indeed the other BRICs remain a sound long-term bet. Reuters spoke to Schroders’ fund manager Waj Hashimi who said his BRIC fund was cautious about the short term, but saw little in the future to detract from what has been a major investment play.

Bric moving up a gear?

Economist Intelligence Unit in cooperation with UK Trade & Investment — Wed, 11 Mar 2009 15:51:32 +0000

It may just be a glimmer of hope but this report by platinum group metals research house Johnson Matthey indicates that car sales in some of the Bric countries may be emerging from the wreckage. Three of the Bric countries – Brazil, India and China – have posted “encouraging auto sales for February”.

In India data suggests that passenger sales are up 22% on a year-on-year basis. Not such good news, however, on the commercial vehicle front where sales fell 50. Meanwhile in Brazil, the national automakers association said that sales of new cars and trucks were up 1 for the third consecutive month. But perhaps unsurprisingly the most bullish news comes from China where sales of cars, buses and trucks jumped by 25% to 827,600 units in February.

In all three countries various measures appear to have helped. In India there have been government tax cuts plus increased access to bank credit after lenders cut loan rates from 13 to 10%. Brazil has cut taxes too. In China the recovery is said to be part of the wider $585 billion stimulus plan as well as subsidies to encourage people in rural areas to buy new cars.

But while General Motors has doubled its Chinese market growth forecast for 2009 and analysts are saying March will be even stronger, the mood in India is a little more sombre. A Hyundai Motors spokesperson said: “The overall market situation continues to be challenging and not much should be read into the February growth."